INTRODUCTION Labour Youth is committed to working within the Labour Party in supporting the party’s commitment in tackling the deeply entrenched and systematic inequality across economic, political and cultural spheres of Irish society. Through this end, Labour Youth have produced this pre-budget submission which we believe demonstrates various measures which would work towards advancing the fundamental pillars of the party, rooted in social democratic and democratic socialist history. Due to the grave effects that austerity has had on our nation, inflicted on us by neo-liberal international financial institutions, the social well-being of the people of Ireland has rapidly deteriated. As an immediate result of spending cuts, increasing unemployment, a decrease to the working wage, and the deteriation of our services, austerity has not led us down the path to recovery. International financial institutions, such as the IMF, World Bank and ECB, are the major proponents in regards to the global support that neo-conservative policies enjoy. Countries where austerity measures have had devastating impacts on its society and where demonstratable systematic inequality has been purely accentuated must start to provide alternatives to these policies which will in return, create a more balanced and fairer society. Our long-term focus needs to be concentrated on equality, as this will in turn have a more beneficial impact on growth and stability as opposed to an unsound academic basis which austerity is based around. Economic studies have consistently pointed out that the more unequal society is the graver the economic crises becomes,
such as the one we are attempting to recover from. As long as such disparities in wealth continues to exist at such grave levels Ireland will continue to struggle on an economic and societal level. IMF research has even demonstrated that equality is directly linked into sustained, longterm growth prospects. 1 A number of economic studies have pointed to the role of inequality in producing economic crises such as the one from which we are still recovering. Recent IMF research has also shown that equality is linked to sustained, long-term growth prospects.2 Finally, income equality is extremely important for the health of a country’s democracy. It enhances interpersonal trust and community cohesion, improves political stability and enables people to engage participate in politics on a more equal footing.
3
Measures which are less damaging to economic growth and employment as well as measures which are least likely to increase economic inequality are desperately required and need to be followed. Budget 2012 had the harshest effects on loneparents, low income earners and women. Measures which encourage ‘government spending [which] can also propel economic development, not only through investments in the social cohesion required for a healthy economic and social environment’ 4 are, instead, what are much needed. Guarantees of a basic income, free healthcare and education are all important pillars which support this idea of social cohesion. While the current Labour Party are undoubtedly trying to refocus Ireland’s long-term aspirations, which fell-off track under the previous government, the choices which
1 IMF WORKING PAPER. INCOME INEQUALITY AND CURRENT ACCOUNT IMBALANCES (2010) 2 IMF WORKING PAPER. LEVERAGING INEQUALITY (2012)[ 3 ALESINA, DI TELLA & MCCULLOUGH (2010) INEQUALITY AND HAPPINESS 4 TASC, CLOSING THE GAP (2012), P 4
have been and which will continue to be made under the subsequent budgets need to be stamped with a severe equality focus. While, as a nation, we are strongly dependent on the financial assistance the troika have provided us with, to support our schools, hospitals and public services, the conditionalities which are attached to these agreements will have a deeply damaging people on Ireland’s youth of today, and for generations to come. The Labour Party, as the most progressive political movement, must use their time in government to lessen the impact that the current economic crises will sustain on Ireland’s young people, and all those at deep risk of grave inequality. LABOUR YOUTH, OCTOBER 2013 This following pre-budget submission was prepared by; Lisa Connell, Deirdre Hosford, Osal Kelly, Darragh O’Neill, Dara Turnball and Neil Warner.
CONTENTS
1. State of the economy 2. Progressive Taxation as opposed to cuts 3. Costed Alternatives 4. Protecting the Youth 5. Investing in employment 6. Budgetary Process
STATE OF THE ECONOMY WHERE ARE WE NOW, AND WHERE ARE WE GOING Key Economic Indicators: Unemployment
Key Economic Factors: Construction
• Unemployment has fallen quicker than expected this year • Live register currently stands around 415,000 • Unemployment rate is 13.4%, compared to 13.9% in January • Recent PMI data have indicated further increases in employment, especially in the all important services sector • However, contraction in employment in the construction sector set to continue with a strong amount of slack in the market • Overall; Expect continued steady decline in unemployment in 2014, although pace of improvement may moderate slightly as the initial holes in the labour market are plugged.
• Much of Ireland’s long-term employment problems can be traced back to the collapse in the construction sector • This sector has been poised for an upturn for most of 2013 which has thus failed to properly materialise • The number of housing completions remains unsustainably low (just 4,405 YT end-July) • There is also an emerging problem with lack in supply
Key Economic Indicators: Manufacturing
Key Economic Factors: Construction and Property
• Manufacturing output has been down YoY in every month of 2013 so far • Exports have been hit by pharmaceutical patent cliff o Ireland must work harder to attract producers of generic pharmaceuticals in order to plug the hole • On a slightly more positive note, the manufacturing PMI has shown a pick-up in output as we head into the final quarter of the year • Overall; Ireland’s manufacturing sector will continue to be tossed about by headwinds from our major trading partners • However, with improving economic tends in Britain, the EU and the US, Ireland, if positioned properly could stand to make gains in the coming years, although we must pursue a more aggressive strategy of attracting investment
• Lack of supply is artificially driving up prices • The problem is being exacerbated by the improving economic outlook and credit crunch • Ireland is therefor experiencing a new property bubble • Dublin house prices were up 8% YoY in July • Private rents up 7.2% YoY • Overview; We need extra resources in terms of urban planning and national housing development • There is potential for an almost instant profit to be had by this government by using some of its cash reserves to construct new properties, creating employment and helping to cool down the market
Key Economic Factors: Consumer Side
Key Economic Factors: GDP and Growth
• The official ESRI measure of consumer confidence rose to a six-year-high in September following a very successful Q3 in terms of retail sales • The good summer weather is likely to have had an impact • Consumer confidence cannot necessarily be relied upon as an accurate indicator as it is by nature extremely fragile • The latest developments are to be welcomed There is an extremely worrying trend emerging however; • Credit is not following properly in the economy • Private sector credit is down 8% YTD • Household credit is down 4.4% • Motgage lending is down 2.2% • Restrictive lending is, and will continue to, choke the life out of the Irish economy • Overview; There is a desperately needed role for the government to deliver on its pre and post election promises to provide a national investment bank that will lend where other credit institutions will not • Newer taxes on the lower and middle classes will definitely be seen as a negative step as we see the first meaningful signs that consumer spending is on a road back to normality now
• GDP grew by 0.4% Q-o-Q in Q2 2013 • However, the economy was still down by 1.2% YoY in the same period • GDP is likely to only grow by 0.5% in 2013, far short of the 1.3% the Dept. of Finance had forecasted • It is only likely to grown by about 2-2.2% in 2014, compared to the 2.4% 2014 estimate • This puts Ireland’s readjustment on a knifes edge
Risks to the Recovery; • The fragility of the recovery in the global economy, especially in the EU, given the importance to exports in the Irish economy - export growth has already slowed sharply • A continuing sharp fall in output from the pharmaceutical sector as the result of the expiry of some key patents • High indebtedness and scale of balance sheet repair by households (mortgage debt is very high, as is mortgage arrears). This is a new phenomenon for Ireland and thus it is difficult to estimate duration and impact of deleveraging on the economy • Continuing credit contraction – fewer banks, tighter credit conditions as well as deleveraging • Fresh crises in the Eurozone e.g. country defaults and/or leaves the euro
STATE OF THE ECONOMY- CONCLUSION • Ireland’s economic future is somewhat, out of its own hands • A smart use of Ireland’s reserves is a one-off urban development scheme consisting of new homes and infrastructure • We need to regain our position as a leader in pharmaceuticals • While there is scope of a budget readjustment of less than 3.1bn this year, it is only a real possibility if we can beat our current growth forecasts
PROGRESSIVE TAXATION AS OPPOSED TO CUTS
The idea of a progressive taxation system has often come under attack under the brief that it is harmful to economic prosperity. Yet, Ireland has been an outlier in being able to maintain both high inequality and high prosperity during the boom; this is no longer possible. The trends shown in the graph indicate that we can either maintain high levels of inequality and suffer a loss in prosperity or alternatively reduce inequality and maintain high levels of prosperity. We can no longer have both. A core aim of the Labour Party should be to work towards the creation of a real welfare state in Ireland. Among other things, a decent welfare state requires a substantial level of taxation and public spending. Yet Ireland continues to lag behind the rest of Europe in this respect. Overall taxation in Ireland is among the lowest in Europe. According to the latest Eurostat figure, Ireland was ranked 22nd out of the 27 EU countries in terms of taxation of a proportion of GDP,
at 28.2% compared to an EU average of 38.4%. We are a low tax economy.
The diagram below demonstrates the amount of tax increase, which would be needed for Ireland to reach various international averages;
Wilkinson and Pickett’s well renowned work, The Spirit Level, have demonstrated that health and social problems have consistently wielded off far worse in more unequal countries. This subsequently demonstrates the need to implement a progressive taxation system in order to establish a much more egalitarian society. There is a wide set of benefits, which have proven to benefit society as a whole, as opposed to just the poorest sections of society when inequality in society is reduced. These include better physical and mental health, lower levels of imprisonment, violence and obesity as well as better educational standards. The greatest way to ensure this is not by making cuts but through a fairer taxation system.
Irish government expenditure, is just below the EU average- but this includes 5.6% which is payment of interest on debt.5 Our level of primary expenditure is 38.4%, which is low by international standards.6 In fact the government spends €6,400 per capita on public services compared to an EU-15 average of €7,6217.
Is it feasible to put equality at the heart of adjustment? Expenditure cuts are not more effective than tax increases. IMF research has shown that the evidence in favour of expenditure cuts over tax increases is largely attributable to the response of Central Banks. Since this factor has no bearing on the Irish situation, the Fiscal Advisory Council has concluded that the argument for cuts over taxes is not strong in the Irish case, and they have stated that they would not lose sleep if the adjustment consisted largely of taxes on high earners instead.8 Equality is linked to sustained long-term growth prospects. Other recent IMF research has shown that the difference between countries that can sustain growth over many years or even decades and the many others that see growth spurts fade quickly may be the level of inequality. This theory is
borne out by both persistent inequalities in Ireland and our own boom-bust economic cycle. This is the narrative we should adopt when explaining the relationship between fiscal adjustments and economic growth.9 Promoting an adjustment programme which focuses on taxing high incomes is politically feasible. This approach already enjoys support from a wide range of bodies such as The Labour Party membership, the trade union movement, civil society and a substantial proportion of Dail opposition. Fine Gael’s aversion towards targeting high incomes can and must be challenged if a more equitable approach is to be followed.
development. We support these ideas through proposing this recommendation; Build and defend the political and macroeconomic argument in the Irish context in favour of ; 1) taxes over cuts and 2) taxes on high earners over taxes on low earners Recommendation: Design and cost an alternative multi-year strategy. Identify a menu of fair taxation measures.
Those least well-off in society should be protected both economically and socially, especially in the areas of health, education, social housing and rural transport. The terms set out in the Irish Bailout agreement are not viable, especially in terms of securing Ireland’s
5 http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&language=en&pcode=tessi082&plugin=1 6 http://www.esri.ie/UserFiles/publications/QEC2011Win_SA_Callan.pdf 7 ibid 8 IMF: Expansionary Austerity: New International Evidence; Report of the Fiscal Advisory Council; Q&A with Oireachtas Committee 9 IMF: Inequality and Unsustainable Growth: Two Sides of the Same Coin?
PRIORITIES
Introducing regressive taxes prior to tackling wealth disparities and high incomes would be the wrong statement and the wrong reality to pursue. Instead, as outlined, the pursuit of a fairer and more progressive taxation system needs to be followed as opposed to increased cuts which has damaging societal effects, especially for those from lower socio-economic backgrounds. The 2013 budget needs to offer an alternative picture to that of the 2012 budget. Because of the tax, income and public sector pay elements alone, in Budget 2012, imposed income reductions of between 2 and 2.5% on the poorest 40% of households and only 0.75% on the richest 30%. 10 It is crucial that Budget 2014 must offer a more equality driven approach, otherwise, the impact of the Labour Party in the current government will continue to be undermined, despite noteworthy progress in a number of different sectors and areas.
http://www.esri.ie/UserFiles/publications/QEC2011Win_SA_Callan.pdf
COSTED ALTERNATIVES The range of targets, which we have compiled below, can be seen to fall in line with other organisations that also seek an egalitarian approach to the budget. The range of approaches, are in agreement with a range of different trajectories, including such as an increase to a ration of 50:50, as outlined in the Labour Party manifesto. Our alternatives would also coincide with a change to a 60:40 ratio. We have proposed these figures in order to demonstrate the feasibility of designing an alternative while being assured that the Labour Party would be able to defend and produce a better alternative. As long-term unemployment continues to rise, Budget 2014 should focus on the protection and promotion of jobs and growth. Long-term unemployment now stands at 8.8%, an increase of 1.1% over the second quarter, or 60% of overall unemployment. 11 Given the country’s severe financial situation, and the enormous extent to which the underprivileged have suffered already, it is unreasonable not to assess all viable revenueraising options. Not only is there a serious lack of supporting evidence to back the alleged contribution of the tax to Irish economic success, but a close assessment will yield the conclusion that there is strong evidence to suggest that the opposite is in fact the case, and that the corporation tax rate was in fact counter-productive to its intended effect. Ireland’s corporation tax rate was cut to 12.5% in 2003. Even since the onset of the recession and the loss of sovereignty that measure has been supported by the four largest political parties, including Sinn Féin. Despite the fact that it was introduced by a Finance Minister whose ideology has been discredited and in co-operation with a party (the Progressive Democrats) which no longer exists, there has been minimal debate about the merits or demerits of the tax rate. Corporation Tax and Economic Growth: The claim of the neoliberal supporters of the current rate is most frequently that the low corporate tax rate was instrumental in Ireland’s previous economic growth. The collapse of the economy alone should be sufficient at least to feel deeply dubious about this claim; however, to take these people on their own terms, we can see from comparing economic growth
at the period when corporation tax was much higher with growth after it was cut to the current level that it cannot have been instrumental: from 1992 to 1997, when Ireland had a 40% corporation tax, the average annual GNP volume change was a 7.12% increase.12 The average annual economic growth has been dramatically lower over the past eight years, with corporation tax at 12.5%. Conservatives with regard to the current rate may point to the recession, but even allowing this, economic growth over the five years 2003 to 2007 inclusive was a full two points lower than from 1992-1997, averaging 5.06%.13 This alone makes it clear that whatever the contribution of corporation tax to our economy, it cannot be a decisive one in contributing to economic growth. The revenues from the increased corporation tax would be ringfenced for spending on infrastructure and economic resources to maintain business confidence in the government’s industrial policy. Corporation Tax and Foreign Direct Investment: Specifically, neoliberals claim that the corporation tax has contributed to our (former) economic success by encouraging foreign direct investment (FDI) in Ireland: multinational companies are attracted as they will have to pay minimal tax; this through job creation and investment contributes economically. In actual fact, what the cut in corporation tax led to was an influx of footloose firms which, by the very nature of their ability to move corporate headquarters easily to avail of tax privileges were also able to do so with minimum commitment in terms of jobs and investment in Ireland, and thus have made no or minimal positive economic impact here. In 2010, a Revenue Commissioners report concluded that about 20 firms had relocated their corporate headquarters to Ireland for tax purposes14 ; however, “[t]he very limited amount of tax paid by some of these firms indicates they do not have any meaningful presence here in terms of investment or jobs”15 This finding is corroborated by a 2011 study by University of Dublin economist Jim Stewart which found that “[t]he greater importance of tax factors the less likely they are to have linkages with local firms…the degree of embededness will be much lower”16 and concluded “a low corporate tax rate in Ireland cannot be ‘the cornerstone of industrial policy’ because most companies pay little or no
11 CSO, Quarterly National Household Survey. http://www.cso.ie/en/media/csoie/releasespublications/documents/labourmarket/2012/ qnhs_q22012.pdf 12 Budgetary and Economic Statistics; Department of Finance, August 2006 13 Department of Finance, May 2008 14 The Irish Times, 9th Sept 2010 15 Ibid. 16 Corporate Tax: How Important is the 12.5% Corporate Tax Rate in Ireland?; IIIS Discussion Paper; no. 375; September 2011 17 Ibid.
corporate tax because they have no or low taxable profits [emphasis added].” 17 The ability of MNCs attracted to set up headquarters in Ireland almost entirely to avoid paying tax was explained further by a New York Times report: “…roughly 20 percent of Irish gross domestic product is actually ‘product transfers’ that raise little tax for Ireland and are owned by foreign companies. Since most of these profits are subject to the tax code, they are accounted for in Ireland where they are lightly taxed; they should not be counted as part of Ireland’s potential tax base.”18 Most revealing of all is a UN report which showed that with a $31.148 billion inward investment in Ireland for 2009 and the first quarter of 2010, there was a $31.048 billion flow in outward investment for the exact same time .19
Potential for Increased Revenue: As an increase in corporation tax is an hypothetical matter, the consequences cannot be predicted precisely, but the evidence adduced above makes clear that it would have minimal impact in terms of MNCs leaving the country; there can also be no doubt that such a move would be enormously lucrative to the Exchequer. According to a parliamentary question in 2005, had there not been a reduction in corporation tax from 16% to 12.5%, the Exchequer would have saved €400 million per annum.22 Extrapolating simply from average corporation tax revenues over the past three years, a return to the previous level of 40% could yield an enormous €12.1 billion per annum52 (by way of example: this would obviously be unpalatable politically; as illustrated with the 16% level, even a comparatively moderate increase would yield sizeable returns).
As such, it is clear that there can be no argument from positive economic benefit for the extremely low taxation rate. Even more interestingly, the low corporation tax rate has not only failed in its desired effect, but been counter-productive in terms of discouraging many firms from remaining: the assumption that CEOs will automatically be enticed by a low tax rate is simplistic: corporations comprehend the importance of facilities and infrastructure, and are sophisticated enough to realise that a government with an unusually low tax rate will have less in terms of resources, thereby regarding this as a negative: in a report, Jim Stewart acknowledges “…a conflict between financial firms who might like to locate activities which incur lowest cost (least regulated) and lowest tax, and the requirements of the location of investors/ liabilities of these firms who are concerned with contract of business type regulation for example, greater protection of investors and regulation that will prevent systemic risk to the financial systems in the parent country.” 20 This is sharply illustrated by the fact that FDI dropped for successive years after the corporation tax rate was cut to 12.5%: in 2003, the FDI was €176.435 billion; in 2004 it fell to €152.446 billion; in 2005 it fell again to€138.626 billion; in 2006, it fell yet again to only €118.824 billion. Although the following year, it recovered to €138.362 billion (still the second-lowest of the six years since the tax was cut), the next year (2008) it fell again to just €120.954 billion.21 These figures confirm that contrary to neoliberal claims, corporation tax has had a negative net impact on foreign direct investment: previous investment has dropped, replaced by a nominal presence by firms who set up operations in Ireland for tax purposes, but make little or no contribution. 18 The New York Times, 20th May 2010 19 Press Release; UN Conference on Trade and Development; 22nd July 2010 20 Financial Innovation and the Financial Crisis; Schumpeter Conference 2010; Aalborg University 21 Ibid. 22 Parliamentary Question 476; 28th September 2005 23 Department of Finance Databank
WEALTH TAX In addition to the Corporation Tax Rate we call on a Wealth Tax, where a small annual tax is to be imposed on the value of a person’s assets. This wealth tax would be based loosely on the French model. In France all global assets are taken into account for French residents; for others, the tax is based on assets that reside in France, with the exception of financial ones. Adopting this system has the benefit of stopping wealthy Irish citizens from simply moving their assets out of the country to avoid the tax, as the wealth tax would transcend international borders and rule out the use of tax havens. As stated earlier the basic assets that make up ones wealth tax liability are housing, bonds, stocks and other such financial assets, businesses, valuable private goods such as art or other collectable goods and returns from financial investments. In principal all assets are taken into account. Such a wealth tax would exempt: • The ‘primary’ family home (up to a value of €1 million); • Working agricultural land; • Professional goods such as enterprises (depending on the percentage owned); • Woods and participation in forestry plantations (for 75% of their value); • Capital value of pensions and retirement plans; • Income obtained as compensation for physical injury in accidents or due to illness; • Assets inherited by those under the age of 18 (excluding assets which generate additional wealth) until they reach adulthood; • The assets of businesses that provide child minding, respite care and other businesses that provide; • Services deemed to be of exceptional social value to the most vulnerable in Irish society; • Works of art on public display An initial system could follow rates for the wealth tax in France, which are as follows; • €0-800,000 - 0% • €800,000 -1,310,000 • 1,310,000 -2,570,000 • 2,570,000 -4,040,000 • 4,040,000 -7,710,000 • 7,710,000 – 16,790,000 • Above 16,790,000 - 1.8%
- .55% - .75% - 1.0% - 1.3% - 1.65%
Financial Transaction Tax The government should support the introduction of a Financial Transactions Tax. This would save the exchequer €130 million a year. A range of other proposals have the potential to bring in significant revenue without reducing economic demand or growth. These include; • An extension of USC/PRSI to Capital Acquisitions Tax and Capital Gains Tax • Reduction in Tax Exemption for Lump Sum Pension Payments • Abolition of legacy Property Tax Reliefs • Halving of interest relief for landlords • Cap tax relief on pensioners for high earners once they reach a pension income of €60,000
Other proposed means of taxation which will help bring about a more equitable budget and to reduce the burden for those least well-off are;
•Increase in the Carbon Tax: This is an area where Phil Hogan’s recent comments about the short term shelving of the climate change bill have left us politically quite weak. An increase in this would allow Labour to easier defend our green credentials. As well as this, a move to the same level as the carbon pricing within the ETS would allow a level playing field within the Irish economy. Furthermore, we believe that the carbon tax should be expanded to apply to both turf and coal – these fuels are especially dirty, and their use should be taxed in some proportion to their environmental damage. It should also be noted that E.S.R.I. indicates that increased carbon tax (as well as site-value taxes) are the taxes with the greatest long run effect on the governmentborrowing requirement.
•Extend Universal Social Charge to Capital Income: Adding to USC to Capital Gains and Capital Acquisitions would increase this charges’ equity, as these sources of income are mostly held by the better off in society. Earnings: €200 Million (figure TASC) •Extend the USC to All Earnings: Currently the USC applies to self employed earners, on earnings in excess of €100,000. We would support Social Justice Ireland’s proposal to widen this to include all those earning in excess of €100,000, so as to decrease the disadvantages we apply to those involved in entrepreneurial activity. Earnings: €50 Million (Figure: Social Justice Ireland)
Earnings: €176 Million (Figure: TASC) •Standard Rate Pension Contributions: This would increase equity within the tax system, while providing a large windfall. Earnings: €500 Million (Figure: TASC)
•Capital Gains: We propose that Capital Gains Tax should be increased bring it in line with the taxation levels of earned income. It should be noted that imputed taxes on capital in Ireland are currently ~50% of the average in the E.U., so this would be merely one step to bringing them in line with the European norm.
•Reduce Tax Exemption on Pension Lump Sum Payments to the Level of the Average Industrial Wage: As suggested by TASC – again an issue that would increase equity within the tax system. Earnings: €65 Million. •Increase the Rate of Imputed Withdrawals on A.R.F.s : to between 7.5% and 12.5% on A.R.F.s over 1.5 Million, dependent on the size Earnings: €25 Million (Figure: TASC) •Abolition of Property Tax Reliefs: At this point, given the cause of our bust, this seems like simple common sense. It’s likely to be highly equitable, and politically is rather difficult to disagree with. Earnings: €450 Million+ (Figure: TASC) Earnings: €221 Million (Figure: ICTU + multiplication) • Reduce Interest Relief on Rental Income: to 40% from 75%, as put forward by TASC. This is another measure which would cause a long run reduction in the likely hood of overheating in the property market. Given the current excess of supply over demand in the housing market, it is also unlikely to be immediately passed on in higher rents.
•Capital Acquisitions Tax: We propose that this also be increased to 42% - in line with taxes on earned income. Again, it should be noted that out taxes on capital are below the E.U. norm. There may be scope for further earnings on this by decreasing the threshold above which C.A.T. is paid.
Earnings: €350 Million
Earnings: €170 Million (Figure ICTU + multiplication)
• Reduce the CGT exemption on Disposal of a site to a Child: From 100% to 50%, as put forward by TASC. Earnings: €19 Million (Figure: TASC) • Remove P.R.S.I. exemption for employees on shares, capital gains, etc : This would level the playing field between the self-employed on one hand, and employees on the other – as one currently pays P.R.S.I. on these gains and the other does not. This currently seems to disadvantage entrepreneurial activity, and so should be changed. Earnings: €115 Million (Figure: ICTU) • Extend the USC to All Earnings: Currently the USC levy applies to self-employed earners, on earnings in excess of €100,000. We would support Social Justice Ireland’s proposal to widen this to include all those earning in excess of €100,000, so as to decrease the disadvantages we apply to those involved in entrepreneurial activity. Earnings: €50 Million (Figure: Social Justice Ireland) • Car Park Tax: Budget 2009 included a €200 tax on car parking spaces provided by employers to employees, which was never implemented. Earnings: €10 million (Figure: TASC) • Introduce a Higher Tax rate of 48%: On incomes of €100,000+ as put forward by Labour before the election – this would increase revenue with only a small deflationary effect, due to the higher propensity to save of those on high incomes. Earnings: €410 Million •Increasing the minimum tax rate: I.C.T.U. put forward a plan to bring in a 35% minimum effective tax rate (up from the current 30%) and to drop the definition of ‘high earner’ from €125,000 to €100,000. Earnings: €100 Million •Text Tax: Social Justice Ireland advocate a tax of €0.0033 on text messages sent. This would cause little hardship, but would lead to a non-trivial increase in revenue, from a reasonably broad base. Earnings: €40 Million (Figure: Social Justice Ireland) •Gambling: Increase the tax to online gambling by 5% Earnings: €100 Million (Figue: Social Justice Ireland) Tax-to-Cuts ratio of 50:50 •Standardise Discretionary Tax Reliefs: as a move to increase the equity of all of these tax reliefs, and to earn a large amount of income without increasing hardship on low income earners. Earnings: €628 Million •Wealth Tax : of 1% on wealth above €1 million, excluding working farmland, business assets, and the first 20% of primary residences in excess of €1 million Earnings: €800 Million
•Tax to Cuts ratio of 60:40 •Increase of 2.5% in Corporation Tax: This would still leave us as the lowest tax nation within the Eurozone, and the second lowest effective corporate tax rate within the eurozone (unchanged from our current position). The costing below is from a single increase of 2.5% - it may however be better to announce a phased increase over the lifetime of the government, to increase business confidence that this is not the beginning of a long term move away from our traditional low tax status.
Labour Youth recognises that any adjustment program will include some level of cuts. However, we believe it is important that these cuts keep equity and deficit reduction as their primary goal. • Private Schools: Withdrawal of funding to private secondary schools Savings: €96 million • Eliminate Interest Relief for Landlords: Eliminate all tax relief for landlords on interest – This would cause a long term slowdown in the property market – something that would be beneficial in attempting to prevent another property boom and bust. It’s worth noting that the saving is the difference between the TASC proposal to reduce relief, and the benefit of completely removing it. Savings: €650 Million (Figure: ICTU/Community Platform)
PROTECTING THE YOUTH PROTECTING HIGHER EDUCATION Irish students are already contributing above the odds towards their education. The level of increase that would be required to meet this deficit through student contributions would be unacceptably high, while small increases in the contribution amount to nothing more than fiscal short-termism. The 2011 OECD Education at a Glance report found that, among the EU21 countries for which data are available, only public institutions in Italy, the Netherlands, Portugal and the United Kingdom charged annual tuition fees of more than 1,200 USD per full-time national student, while the United Kingdom was the only EU country to charge over 2,000 USD. When compared against tuition fees charged in other EU countries, the existing student contribution of €2000 per annum already positions Ireland as the second most costly country for national students across the EU. The extent of the economic and social collapse that has occurred in Ireland since 2008 must be taken into account when considering student contributions. Any attempt to shift the burden of cost away from the tax system and towards students and their families in this context will create student poverty traps across the system and have irreparable negative consequences for participation and student well-being. Labour Youth believes that fees, student loans, and graduate taxes are inequitable and inefficient means of increasing funding to higher education. In fact, these proposals amount to nothing more than varying attempts to avoid the underlying problem of historically inadequate progressive taxation, even though the tax system is by far the most efficient and equitable vehicle to achieve the stated aims of the other measures. Labour Youth notes; •Increasing student contributions to higher education is an inefficient means of addressing income inequality, since they target graduates in particular instead of high earners in general and allocate cost on a less progressive basis than the tax system. Therefore, any approach to higher education policy that hinges upon a conflation of the benefits of education and the phenomenon of high incomes is fundamentally flawed. Precisely this approach was laid out in Fianna Fáil’s National Recovery Plan: 2011-2014, which stated that: ‘As well as the wider benefits for society, higher education directly benefits its participants through better lifetime earnings opportunities. Over the period of the Plan,
it is intended that a higher student contribution to the cost of higher education will be made.’ •In the current Irish context, increased student contributions are inefficient in their aim of increasing overall funding to higher education because of corresponding reductions in state investment. Budget 2011 outlined that: ‘The 2011 provision for Universities, Institutes of Technology and other higher education institutions is €1.113 billion, which represents a gross reduction of 7% on the allocation for 2010. Net of adjustments for increased income in respect of the Student Contribution Charge of €2,000, the overall 2011 reduction is 2.2% (5%, or €14 million, in the non-pay grants payable to these bodies and a 1.5% pay cost reduction).’ •Student contributions are inefficient and inequitable means of revenue-raising because they place a disproportionately heavy burden and focus on the incomes of higher education participants and/ or their parents, when the costs of higher education should be spread across society and the tax system as a whole, including taxes on profits and labour, and balanced by revenue raised by the universities from other sources. •Student fees enforce the concept of the student-as-consumer, whereby students come to perceive their education as a transaction in which they pay for a service (i.e. a good higher degree) which they feel entitled to receive in return. The idea of the student-as-consumer is entirely inappropriate to the nature of higher education. Students have the right to achieve a good higher education, but the responsibility to gain that education ultimately rests with the students themselves and can only be achieved through independent learning and inquiry. A shift towards a ‘student-consumer’ funding model could therefore have negative impacts upon grade inflation. A devastating critique of the effects of creeping consumerism and differentiated marketization on higher education in the United Kingdom was recently published under the title In Defence of Public Higher Education and signed by hundreds of academics across the UK. 24 •Funding of higher education is an intergenerational contract, whereby current taxpayers contribute towards the education and future well-being of the next generation. For fifteen years, higher education participants have benefitted from free fees; this generation must contribute back towards the cost of educating the next, through the tax system. If the government decides to refocus the cost burden of higher education onto current and future students
24 ‘In Defence of Public Higher Education’, September 2011. Accessible at: http://www.guardian.co.uk/education/interactive/2011/sep/27/ higher-education-alternative-white-paper.
families, the intergenerational contract that was established upon the advent of free fees will be broken and replaced with glaring intergenerational injustice.
for loan system sustainability are currently being played out in the United States.31 Large-scale emigration of graduates could also undermine such a system if repayments were to be made through the Irish tax system, as per the Fine Gael model.
Student Loans Free fees and the maintenance grant must not be replaced with a student loan system. In relation to student loans, Labour Youth notes that: •Student loan schemes cannot avoid the pitfall of debt aversion. Preliminary figures for 2011 from the UK indicate a steep drop of 12% in applications to third level institutions since the increase in deferred tuition fees.25 Research conducted in Australia - where fees can be deferred using a student loan and are repaid through the tax system - also indicated a high level of financial stress among students. Many students criticized the level of debt associated with higher education and questioned whether their degree was worth it, given the debts they would have upon completion. 26 •There are significant gender implications associated with debt aversion: the UK evidence shows that 10.5% of women were put off by increased costs compared to 7% of men. Research carried out in Germany confirms that women are more debt averse than men,27 while the Australian data also showed that women were more likely to report difficult financial positions.28 A recent survey demonstrated that while two thirds of Irish students now find that financial worries are impacting negatively upon their studies, the percentage was much higher among women (72%).29 •The introduction of a student loan scheme requires a large initial investment by the state, which is made on the basis of speculation as to the factors outlined above and may lead to unintended consequences and cost-cutting reforms in the future. The risks associated with this speculation are particularly high in the Irish context, given that it would take an estimated 17 years for an Irish student loan scheme to become self-financing.30 It would be extremely reckless to establish an income-contingent loan scheme for graduates on the back of a youth unemployment crisis, as it would be impossible to accurately calculate future repayment patterns. The disastrous implications of youth unemployment
•The student loan model advocated in the Hunt Report is of particular concern. It is suggested that students be provided with an option to pay all or part of the contribution up-front. This would result in inequality between students whose parents can provide them with the means to pay down their contribution up-front, and those whose parents cannot afford to do so. Students of wealthy parents could therefore enter their working lives relatively debt-free, while students from middle and lower income backgrounds or larger families would emerge from higher education more heavily indebted than their wealthier peers. This model amounts to an inequitable and confused hybrid of student-centred and parent-centred approaches to cost. However, the 2009 report on Policy Options for New Student Contributions to Higher Education indicated that the state might find this unfair model attractive because of the potential to generate more immediate fee-income from high income parents who can afford to pay up-front for their child instead of deferring the payment until the student’s own income reaches the required level. The Fine Gael proposal also allows for immediate repayment upon graduation.32 By contrast, the loan scheme advocated by Social Justice Ireland specifies that ‘all students would be treated on the same basis as repayment is based on their own future income rather than on current parental income.’ 33 •Under the Fine Gael model, grant recipients would become liable for fees, which would be applied through the deferredpayment student loan facility. In effect, such student loan schemes serve to replace grants provided to disadvantaged students in lieu of student contributions, tuition fees or even living costs with personal debt. Grants are more effective than student loans in increasing participation for low-income groups, and every effort must be made to ensure that such grant payments are not replaced with student loans. 34 •This replacement of welfare payments with personal debt would only contribute to the overall problem of indebtedness in Irish society.
25 ‘In Defence of Public Higher Education’, September 2011. Accessible at: http://www.guardian.co.uk/education/interactive/2011/sep/27/higher-education-alternative-white-paper. 26 Shepherd, ‘UK university applicants drop by 12% before tuition fee rise’, Guardian, 24th October 2011.James, Bexley, Devlin and Marginson, Australian University Student Finances 2006, Centre for the Study of Higher Education, University of Melbourne, August 2007. 27 Lorz, Schindler and Walter, ‘Gender inequalities in higher education: extent, development and mechanisms of gender differences in enrolment and field of study choice’, Irish Educational Studies, 30; 2, 2011. 28 Australian University Student Finances 2006. 29 ‘Study on the Cost of Third Level Education in Ireland 2011’. 30 Policy Options for Student Contribution, 2009. 31 The Economist, ‘Student Loans: The Indebted Ones’; ‘Student Loans in America: The Next Big Credit Bubble?’, 29th October 2011. 32 Fine Gael Green Paper on Reform of Higher Education. 33 Social Justice Ireland, ‘Government Should Introduce a Student Loan Scheme for Third Level Students in Budget 2012’, Accessible at http://www. socialjustice.ie/content/government-should-introduce-student-loan-scheme-3rd-level-students-budget-2012. 34 Usher, ‘Grants for Students: What They Do, Why They Work’, Educational Policy Institute.
Graduate Taxes In relation to graduate taxes, Labour Youth notes that: •The attraction of the concept of graduate taxes is particularly difficult to understand since it comes very close to funding through progressive taxation but is riddled with inefficiencies and anomalies that general taxation avoids. •As a means of tackling income inequality, it is a poor substitute for increased progressive taxation, since high-income earners who did not receive a higher education would end up paying less tax than high-income earners who did. •The question of whether graduates of universities outside of Ireland who are earning incomes in Ireland should be liable for the tax illustrates the illogic of the concept. If such graduates were made liable for the tax on their income in Ireland, they may end up paying for their higher education twice if they are already liable for fees or loans in their home institution. If they were not made liable to pay the tax, then a situation would arise whereby high income graduates working in Ireland would be paying different levels of tax depending on whether they received their education in Ireland or elsewhere. • The idea that progressive taxation to fund higher education should only be leveled at graduates runs counter to a fundamental solidarity principle of the tax system, whereby earners frequently pay taxes for strategic social services that are used by others. Students with Children Labour Youth believes that the government should provide a dedicated grant allocation in respect of the costs of childcare, which are particularly high in the Irish context. Currently, childcare costs are not explicitly acknowledged by the grant system. Childcare may be indirectly addressed via social welfare benefits for some students, while provision
35 Study on the Costs of Higher Education Participation.
for childcare costs can also made by individual institutions through administration of the Student Assistance Fund. However, the Student Assistance Fund is designed as a last resort for students experiencing financial hardship, and the Higher Education Authority has queried the extent to which such supports are used to provide funding for sub-groups of students with particular needs, such as students who face considerable childcare expenses. Childcare costs represent a barrier to participation for students with children, and students with children report higher levels of financial strain.35 This situation is likely to have been exacerbated by the 2010 decision to abolish automatic entitlement to the non-adjacent grant rate for mature students. Labour Youth believes that an explicit acknowledgment of such costbarriers should made through a dedicating allocation within the grant system. Disabilities In relation to higher education access for students with disabilities, Labour Youth believes that the Fund for Students with Disabilities must be protected. Labour Youth believes that the state should provide funding support to initiatives such as the Certificate in Contemporary Living offered by Trinity College Dublin. Labour Youth condemns the capping of the number of Special Needs Assistants. A crude cap on the level of support available at primary and second level will have detrimental effects on the dignity, participation and well-being of students with disabilities. This measure has also sent a deeply offensive signal to families of special needs children that their welfare is low on our list of national priorities. In seeking to make necessary budgetary adjustments, vulnerable children should be our last port of call. Labour Youth believes that posts should be allocated on the basis of need, and we believe that Irish society is fully capable of finding the means to protect its most vulnerable members, even in times of recession.
Higher Education- a Long-term Approach Higher education institutions should be required to increase revenues from other sources, and an increase in private funding should not be taken to mean increased student contributions. In long term, Labour Youth believes that the best way that graduates and non-graduates alike can contribute towards the cost of higher education for all citizens is through a robust and progressive tax system. The need for Ireland to build a more sustainable tax base in the long term goes beyond the question of higher education funding and the scope of this paper. However, we can nonetheless make a number of observations. The Hunt Report suggested that recurrent annual funding for higher education will need to increase by at least €500m per annum by 2020, as well an unspecified increase in demand upon student support budgets. Labour Youth does not believe that these funds should nor need be sourced from increased individual student contributions. One basic question is the extent to which the €500m should consist of additional funding from either public or private sources. Labour Youth believes that it would be entirely reasonable to seek additional revenue from public funds. Ireland spent exactly the OECD and EU average in overall public spending on tertiary education as a percentage of GDP in 2008 (1.3%). If we expect to achieve better than average outcomes from a world class education system in the long term, it is reasonable to expect above average state investment. An increase of .2% of GDP in public funding would contribute over two thirds of the desired €500m and bring Ireland in line with Austria, Iceland and the Netherlands. Under this scenario, Ireland’s public investment in higher education would still remain well behind that of other countries, such as Canada (1.7%), Denmark (2.2%), Finland (1.9%), New Zealand (1.9%), Norway (2.9%) and Sweden (1.8%). The most effective means of increasing contributions towards higher education while reducing inequality of access would be to raise funds from higher income groups through targeted tax reforms, and reinvest this in higher education and access supports. A 2010 study found that abolishing tax relief in respect of private medical insurance, which disproportionately benefits high earners and contributes towards inequality in healthcare provision, would save the state €320m per annum. A significant reduction in the availability if the employee income tax credit to higher earners would yield €1b per annum.36 We cite these figures not to suggest that all of the funds raised through such measures should be used to fund higher education, but merely to point out the feasibility of finding increased revenue through long-term, progressive reforms. A long-term project should also involve increased employers’ PRSI contributions and a reasonable and staged increase in corporation tax, to ensure that companies that benefit from Ireland’s educated workforce make an appropriate contribution to the Exchequer towards the cost of this provision. The Hunt Report also pointed to the role of the National Training Fund.
36 Collins and Walsh, Ireland’s Tax Expenditure System: International Comparisons and a Reform Agenda, Studies in Public Policy No. 24, Dublin, Policy Institute, Trinity College Dublin, 2010.
INVESTING IN EMPLOYMENT
Introduction This policy document proposes the establishment of a Youth Entrepreneur Fund (YEF) to be considered as part of the labour-market activation policies introduced in either Budget 2014 or for inclusion into the 2013 Action Plan for Jobs. Although the standardised unemployment rate has stabilized at circa 14.6%, youth unemployment has consistently remained significantly higher in the 18-25 year-old demographic. According to a recent monthly bulletin by the Economics Division of the Department of Finance youth unemployment remains a serious issue with outward migration heavily concentrated in the 18-25 year-old demographic. Youth unemployment among 15-19 year olds stands at 38.5% while it is 29% for the 20-24 age demographic. Youth unemployment is a serious issue particularly affecting young men. This rate of youth unemployment is devastating for the long-term growth prospects of the economy. The number of young people in employment has halved since 2008. While fully recognising the tough fiscal environment facing the government and the tough budgetary adjustments necessary to reduce the underlying exchequer deficit this policy document is calling for a greater emphasis on labour market activation policies. Impact of Youth Unemployment The unemployment crisis is Ireland is both a social and economic crisis that will haunt Ireland for the decade to come with the standardised unemployment rate unlikely to fall to single figures this side of 2020. Unemployment represents a significant burden on the exchequer through social transfers and has many negative social conse-
quences. As a country, we need to do everything we can to prevent joblessness among an entire generation as it destroys the confidence of the individual with their job prospects declining the longer they are out of work. Skills erosion on a mass scale due to unemployment may also hinder the long-run growth prospects of the economy as unemployment acts as a drag on long-term growth prospects. Unemployment also has a detrimental impact on a person’s mental health and can lead to depression, relationship strain and in extreme cases suicide. Unemployment at the early stage of a career also negatively impacts on expected average lifetime income and increases the probability of unemployment further down a person’s career path. While recognising that many government initiatives and labour activation policies have already been implemented, this policy document believes that more can and should be done. Although there are many state supports via Enterprise Ireland and the local County Enterprise Boards there is no specific fund youth entrepreneurship fund for the youth of Ireland, yet it is something that exists in many countries around the world. Many young entrepreneurs are struggling to access credit due to the higher credit risk in lending to such individuals and with regards to state funding, unless a business idea involves/displays manufacturing and export potential such funding is not available. We have all heard of many young entrepreneurs who can’t get funding via either state grants or the financial institutions. We believe that the idea of a Youth Entrepreneurship Fund (YEF) is something that should seriously be considered. Evidently, we are faced with austere budgets for some time to come and we know that significant fiscal challenges remain.
But, if we were to even consider establishing and running such a fund on a one year pilot basis we may be surprised at how successful it may be. Such an initiative we strongly believe could really make a difference and the concept of such an initiative may gain significant support among the public and send out a message of hope. In a period of fiscal consolidation, there is limited room for job creation in the public sector. Only the private sector will create the employment necessary, 70% of private sector employment in Ireland is generated by SME’s (Small and Medium Sized Enterprises). Encouraging and supporting young people to set up their own businesses is vital to Ireland’s economic recovery. Why a Youth Entrepreneurship Fund? – Is there really a need? Young people have difficultly securing access to credit for a number of reasons. A lack of experience, a lack of a sufficient credit history and limited savings/capital ensure that young people are categorized as high risk and as such cannot access credit easily. Enterprise Ireland and County Enterprise Boards and primarily manufacturing for export-driven in focus and as such many young entrepreneurs do not qualify if their idea is not focused on export. The Comprehensive Start Fund for Female Entrepreneur’s that was established by Minister Richard Bruton was so over-subscribed that funding for the fund was tripled from just €250,000 to €750,000. The underestimation of potential applicants highlights the difficult credit conditions facing both women and young entrepreneurs. Launching the fund for women entrepreneur’s Minister Bruton outlined that if Ireland had the same levels of entrepreneurship as Australia, that an additional 34,000 jobs could potentially be created. Implementation of a youth entrepreneurship fund and encouraging a culture of youth enterprise needs to be fostered and encouraged by the state. At a time when youth unemployment is at elevated levels, it makes sense to establish a Youth Entrepreneurship Fund to assist young people who wish to establish their own enterprises and to encourage a culture of youth enterprise, excellence and innovation. The implementation of the Youth Entrepreneurship Fund could complement the objectives of the Youth Guarantee, however with a more of an entrepreneurial and job creation focus. It should be pointed out also that young people benefit less under some schemes introduced by the Government. Consider the Seed Capital Scheme: Tax Refunds for New Enterprises where PAYE workers can claim back tax they have paid for a period of 4 years, a young person is likely to have earned less and worked less and as such, can claim back less under this scheme than older PAYE workers. Considering the high levels of youth unemployment, enterprise should be an option to unemployment. More needs to be done. A large number of people in this coun-
try do no buy the argument that the current support systems are working and that more time needs to be given. The time has come for this Government to establish a Youth Entrepreneurship Fund. The Youth Entrepreneurship Fund The Youth Entrepreneurship Fund (YEF) would be established and implemented on a two year pilot basis. We welcome the recent establishment of a specific fund of €750,000 for female entrepreneurs and believe that a fund of similar size should be considered for implementation on a one year trial basis pending further review with a view to it increasing in size over time. Establishing a specific fund for women entrepreneur’s but not young entrepreneur’s, is incredibly unfair and gives the impression rightly or wrongly that young people do not matter and that we are content with such high levels of unemployment. •The fund should be administered by Enterprise Ireland with representatives on the YEF council from the Department of Jobs, Enterprise & Innovation, with no more than one third of the governing council consisting of young entrepreneurs themselves and youth workers. •Funding for viable enterprises in all business sectors will be considered for businesses that can develop into viable enterprises and generate employment. •Applications will be considered from young entrepreneurs aged 18-25 years of age. •Further definition of criteria and funding structures we leave up to the discretion of the government and the Department of Jobs, Enterprise & Innovation. •Manufacturing and export not essential – Many young entrepreneurs will not be engaged in export immediately after the start-up stage. That comes after the initial startup. Funding – How will the Fund be Financed? 1) European Social Fund (ESF) – Some Funding for the Youth Entrepreneurship Fund (YEF) could be drawn down from the ESF, a structural fund specifically designed to fight unemployment and to prevent people from becoming disengaged with the labour market. The YEF would qualify for such funding. The Government should apply for funding on behalf of the fund with a view to supporting young entrepreneurs and fostering and encouraging a culture of innovation, entrepreneurship and excellence among young entrepreneurs
2) EU Budget – In the recent EU budget deal over €6bn was set aside to be specifically targeted at addressing the issue of youth unemployment. Countries like Ireland where youth unemployment will be able to drawn down funding and part of that should fund the Youth Entrepreneurship Fund proposal. With such a large budget being set aside, there are simply no excuses for not establishing this fund. 3) Private sector involvement comes under two headings, investment and sponsorship. On the investment side - the fund shall seek private sector investors who wish to invest in potential business ventures under the YEF initiative, purchasing a minority stake in such businesses with a view to sharing in any potential future profits. Many venture capital companies and even multinationals such as Google, Twitter, Facebook and others could be sought to invest in the YEF initiative. This would see bidding inexperienced entrepreneur’s linked up with bidding inexperienced entrepreneurs. On the sponsorship side, the fund could simply look for sponsors of the fund who in return would gain publicly and enhance their brand image and market awareness. 4) Financial institutions will be asked to make funding available for lending purposes to viable business start-ups linked to the YEF. With YEF backing financial institutions may be more willing to lend to viable enterprises. 5) Current resources – As a last resort funding would be allocated to the YEF from either current government expenditure or the current budget of the Department of Jobs, Enterprise & Innovation. 6) National Pension Reserve Fund (NPRF) - The NPRF could be considered with regards to funding the Youth Entrepreneurship Fund if in the unlikely event, all other avenues for funding fail. No idea, no matter how small could make a difference. Even the announcement of such an initiative may encourage confidence and engender hope among the Irish public that everything that is being done to resolve the unemployment crisis is being done. There are so many talented individuals out there in Ireland, passionate and energetic who could generate employment and make a contribution to economic growth if provided the right supports. Again, even if the idea or concept of such a fund was considered, no matter how small, it could really make a world of difference to many enthusiastic young people. Let us take this opportunity to address three key criticisms of this initiative and let us address each concern specifically. The Youth Entrepreneurship Fund – Criticisms
1) State supports already exists Yes, it is true that there are many state supports for either growing SME’s or for entrepreneurs with a view to establishing their own businesses such as the new €90m Microenterprise Fund. However, in terms of seed capital and direct financial state aid, if the business model or the business idea does not involve manufacturing for export Enterprise Ireland and the local county and enterprise boards in reality are extremely limited in what they can do. Although they can assist with training supports and marketing, no direct capital will be provided for most business ideas outside of the export led model. This stems from Ireland’s export-led strategy but to the detriment of encouraging the development of indigenous companies. While the Microenterprise fund does guarantee the first €25,000 of loans it doesn’t provide direct state grand aid. The YEF is much more likely to encourage and sustain business viability as it encourages investment from experienced private sources who can lend advice, experience and ideas as potential business partners. 2) Why should Young people be treated any different? If young people are good enough, surely their ideas will be supported and they will get funding? Wrong, many young people and their business ideas are categorised as high risk by financial institutions because of their lack of experience and limited initial capital/savings. Young entrepreneurs can be discriminated against and face unique barriers and challenges to funding. That is where we believe the establishment of a YEF would come in, it would directly address the credit issues faced by young entrepreneurs and it would provide a state fund for business ventures which do not necessarily have to be export driven businesses. Although the microenterprise fund has been established, a specific youth entrepreneurship fund would provide direct state aid to young entrepreneurs who do not necessarily have to have business models that are export and manufacturing driven. Crucially, a specific youth entrepreneurship fund would encourage a culture of innovation and excellence among the youth of Ireland acting as the nation’s primary enterprise hub for youth entrepreneurship and enterprise among the youth of Ireland. Establishing such a fund, sends out a clear message that the government takes the issue of youth unemployment seriously and it would send out a message of hope in such dark and difficult economic times.
3) Funding - Ireland is in a fiscal straitjacket with little room for manoeuvre. Yes, it is true that funding in Ireland at the moment is particularly tight with the country engaged in a bailout programme that will us attempt to reduce the deficit to 3% of GDP by 2015. Ireland faces many more tough budgets for years to come and no one denies the difficult and austere budgetary climate we will face for years to come. However, there are multiple options for funding as outlined above. The primary source of funding for the fund in the long-run would be from potential investors and private sources. No fund, no idea how small should be underestimated in terms of its ability to generate hope and belief among a generation. Even if the Government is reluctant to get involved in such a fund, the YEF initiative could be the centre point for young enterprise and innovation in Ireland, connecting potential future entrepreneurs to current and experienced ones. It would send a clear message that this Government is serious about addressing youth unemployment and offer hope in a time of crisis. Simply pointing to current supports is not good enough, this idea deserves a few moments of consideration by the Government. The YEF concept also deserves consideration for integration into the Government’s current Action Plan for Jobs. Conclusion The Youth Entrepreneurship Fund (YEF) fund has the potential to be more than just a fund that administers state grants to potential entrepreneurs. It could be more. ➢ It could be an initiative that provides support, guidance and advise to young entrepreneurs. ➢ It could connect new and inexperienced entrepreneurs with experienced business people. This would mean private sector mentoring, advice and networking opportunities as opposed to just help from state officials. ➢ A voluntary register of young enterprises could be established and an innovative, Ireland presented to the world. ➢ The YEF could also organise an annual “Excellence in Youth Enterprise, Innovation & Excellence” fair where young entrepreneurs could market their businesses, where they could make contacts and develop new relations and of course gain potential investors and business partners. This would mean that it would be more than just a fund; it could be the focal point for youth enterprise, excellence and innovation in this country. Simply pointing to second level initiatives is not good enough; it is not acceptable that enough is being done. ➢ There is a wealth of untapped potential in Ireland that needs to be stimulated for the benefit of a society that encourages its young people to contribute their ideas, passion and energy into rebuilding our economy and society. The employment benefits of this concept should not be underestimated, neither should the message of hope it could bring to a nation.
Concluding remarks There is no reason why a Youth Entrepreneurship Fund should be not implemented considering a fund for women entrepreneurs was established and that youth unemployment particularly among young men at elevated levels. A Youth Entrepreneurship Fund is needed to assist young entrepreneurs, and to send out a message of hope to a young generation who feel alienated by their political leaders. It would signal an element of seriousness on the part of policy makers that youth unemployment is an issue that is being addressed by Irish society. Funding is not an issue, given the availability of European funding. With youth unemployment being one of the themes of the Irish presidency, and with a Youth Guarantee also being considered, the time is now for a Youth Entrepreneurship Fund. A jobless generation will not forgive policy makers if it is perceived that more could have been done to prevent a jobless generation with little hope for the future. This pre-budget submission calls on the Irish Government to consider the following initiatives to tackle youth unemployment: 1.Conference calls on the Irish Government to implement a national Youth Entrepreneurship Fund (YEF) on a two-year trial basis of no less than €1,000,000. 2.Conference proposes that the Irish Government, the Department of Jobs, Enterprise & Innovation alongside with financial institutions organize an annual Youth Entrepreneurship Fair. 3. Conference proposes that the Irish Government and the Department of Jobs, Enterprise and Innovation revaluate the potentially discriminatory nature of some employment initiatives such as the Seed Capital Scheme which benefits higher paid PAYE-workers more than lower paid workers and benefits those who have been in PAYE type employment for a longer period of time. Conference proposes a restructuring of the Seed Capital Scheme which will more favourably impact on younger and lower paid PAYE workers. 4.Conference proposes that the Irish Government and the relevant Departments should publish an annual Youth Action Plan for Jobs which specifically addresses the issue of youth unemployment and proposes ways for job creation for young people to be considered and establish a Youth Policy Committee which actually has an input from young people. 5.Conference regrets the lack of resources available to the Irish Government to stimulate the domestic economy. Conference believes that had more prudent management of the public finances occurred during the 1997-2007 period Ireland would have had additional policy options and revenues available to the Government. Conference thereby proposes the establishment of a permanent National Recovery Fund whereby at least 5% of any budget surplus from 2018 onwards would allocated into the NRP so that in times of economic recession, economic difficulties or unforeseen stressful economic scenarios, that the Government has additional monies at its discretion to stimulate the economy through investment, increased Government expenditure, etc. Labour Youth believes this to be a sensible proposal that merits consideration by policy makers.
BUDGETARY PROCESS Equality Budgeting Budget 2013 should steer away from disproportionately affecting those who Budget 2012 hit the hardest. The TASC report ‘Winners and Losers?’37 demonstrated that single parents, low-income earners and women were harshest hit by the last budget. This should not occur under a junior Labour Party Government. While we acknowledge there are restrictions for the junior party in government a more equality driven budget is not only possible but crucial for Irish society as a whole . Equality budgeting is an approach to economic-policy making and planning that places equality at the centre of budgetary decisions. While the task of achieving a complete equality proofed budget is restricted as a result of conflicting ideology between both parties in coalition, specific outcomes should be directly used to reduce inequalities and achieve better equality outcomes for disadvantaged groups, and progressively for society at large. Despite notable impacts of a Labour Party government, such as taking 330,000 low-paid workers out of the Universal Social Charge net and restoring the minimum wage there is a severe need to introduce Equality Budgeting in Ireland, which we believe The Labour Party should be at the forefront of championing, given the fundamental pillars of the Labour Party are established upon equality and social justice. The gap between the richest and poorest in Ireland increased by 25% in 2010, with the top 20% earning 5.5 times the income of those of the lowest 20%. Furthermore, the percentage of people in Ireland living in constant poverty increased in 2010, as did the percentage of children at risk of poverty which stands at 19.5%38 Those least well-off in Irish society cannot take any more hits in measured budgetary changes. TASC has noted the “ need for every budget to be carefully analysed before and after, to see how it changes the distribution of income and wealth in society, and how it affects different household types and impacts upon men and women differently.... a full distributional analysis of budget measures, including equality-proofing and gender-proofing.” 39 In Scotland, an independent advisory group, the Equality and Budget Advisory Group (EBAG), works with the Scottish government to; • Provide advice and support for the mainstreaming of equality in policy with the appropriate allocation of resources • Contribute to mapping the pathway between evidence, policy and spend • Improve the presentation of equality information in Scottish budget documents • Contribute to improved commitment to and awareness of mainstreaming equality into policy and budgetary processes The advisory group is made up of government and civil society actors such as the Women’s Budget Group, the Equality and Human Rights Commission, the Scottish Government Finance Directorate and the Office of the Chief Economic Adviser. The Scottish budgetary process involves the publication of a draft budget, which allows for public consultation and debate on the particulars of the budget before it is finalised. The publication of an “equality statement” alongside the draft budget clearly outlines the equality implications of the budget. The statement is arranged under key themes of the budget, such as “health and wellbeing”, “culture and external affairs”, and “finance, employment and sustainable growth”. Additionally, the statement provides an overview of the equality implications by “equality characteristic”, that is, by gender, age, disability, and other categories. Hence, it includes a detailed analysis of the impact of specific policy measures on women, on young people, on people with disabilities, and others, while providing a detailed view of the equality outcomes for members of the public. In addition to this, the Scottish government has undertaken in-depth research on the effects of the economic crisis in a report entitled Coping with Change and Uncertainty: Scotland’s Equality Groups and the Recession (2010), and a further updated analysis in the report The Position of Scotland’s Equality Groups: Revisiting Resilience in 2011 (2011). Both reports and the Equality Statement on the draft budget are publicly available on the Scottish government’s website, as are the minutes of meetings held with EBAG. 40 We believe that the Labour Party should insist in the implementation of an equality budgeting approach in order to put a halt to increasing inequality and poverty in Ireland. 38 http://equalitybudgeting.ie/index.php/publicationsresources-2/the-need-for-equality-budgeting-in-ireland/ 39 TASC, “Winners and Losers? Equality Lessons for Budget 2012”, 2011a http://www.marriagequality.ie/download/pdf/tasc_winners_and_losers_budget_2012.pdf 40 http://equalitybudgeting.ie/index.php/publicationsresources-2/equality-budgeting-in-focus-the-scottish-model/